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Bartesch v. Cook

United States District Court, D. Delaware

April 23, 2013

MARTIN BARTESCH, FRED BRYANT And JOSEPH P. CRAIG, Individually And On Behalf of All Others Similarly Situated, Plaintiffs,

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[Copyrighted Material Omitted]

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Timothy J. MacFall, Esq. (argued), RIGRODSKY & LONG, P.A., Garden City, NY; Brian D. Long, Esq., RIGRODSKY & LONG, P.A., Wilmington, DE, Attorneys for Plaintiffs.

Kelly M. Hnatt, Esq. (argued), WILLKIE FARR & GALLAGHER LLP, New York, NY; S. Mark Hurd, Esq., MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, DE, Attorneys for Defendants.


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Pending before the Court is defendants' motion to dismiss the amended complaint. (D.I. 16). On November 29, 2011, plaintiff Martin Bartesch filed this putative class action against defendants Brent M. Cook, Martin F. Petersen, John T. Perry, Richard D. Clayton, Nicholas Goodman, Kraig T. Higginson, Reynold Roeder, Barry Markowitz, Alan G. Perriton, James A. Herickhoff, and Scott E. Doughman, alleging violations of the Securities Exchange Act of 1934. (D.I. 1). On March 1, 2012, this Court issued an order appointing Bartesch, Fred Bryant and Joseph Craig as co-lead plaintiffs. (D.I. 10). On April 30, 2012, plaintiffs filed an amended class action complaint. (D.I. 14). Defendants filed the instant motion on July 13, 2012. (D.I. 16). The motion is fully briefed (D.I. 17, 19, 20) and oral argument was held on

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September 25, 2012. For the reasons that follow, the Court will grant defendants' motion to dismiss.


Raser is an energy company focused on geothermal power development and technology licensing. (D.I. 14 at ¶ 2). Defendants are former officers and directors of Raser. ( Id. at ¶ ¶ 21-31). Plaintiffs are three former Raser shareholders who are suing on behalf of a putative class of purchasers of Raser's common stock between May 11, 2009 and April 29, 2011. ( Id. at ¶ 1).

In 2008, Raser reported the completion of a new geothermal power plant in Beaver County, Utah called " Thermo No. 1," which was developed using Raser's " rapid deployment" strategy. ( Id. at ¶ 2; id. at ¶ 53; D.I. 18, Ex. B at 11-12) [1]. Raser disclosed in SEC filings that, pursuant to that strategy, it " target[ed] well-studied properties with known geothermal anomalies," because " the amount of time and capital for well field development and the risks associated with such development are generally reduced." (D.I. 18, Ex. B at 11, 14).

Raser began selling electricity generated at Thermo No. 1 to the City of Anaheim, California in April 2009. (D.I. 14 at ¶ 2). In its first quarter 2009 10-Q, filed with the SEC on May 11, 2009, Raser stated: " With the completion of the major construction items of the Thermo No. 1 plant, we believe we have demonstrated our ability to quickly develop geothermal power projects using our rapid deployment business model." (D.I. 14 at ¶ 51; D.I. 18, Ex. C at 12). Raser's first quarter 2009 10-Q also stated that " [w]e expect the Thermo No. 1 geothermal power plant to become operational at or near full capacity early in the third quarter of 2009." (D.I. 14 at ¶ 53; D.I. 18, Ex. C at 11). In its second quarter 2009 10-Q, filed with the SEC on August 10, 2009, however, Raser disclosed that it was experiencing " unexpected difficulties and delays in developing a well field that will produce sufficient heat to operate [Thermo No. 1] at full capacity." (D.I. 18, Ex. D at 48). As of June 30, 2009, Thermo No. 1 was producing " slightly less than half of the plant's designed capacity." (D.I. 14 at ¶ 2).

On March 18, 2010, Raser filed its 10-K for the fiscal year ended December 31, 2009. In its 2009 10-K, Raser stated that " [b]oth the gross output and the net output of the [Thermo No. 1] plant are below the amounts the plant was designed to produce, primarily due to issues related to the temperature of the resource from the well field." (D.I. 14 at ¶ 75). In June 2010, Raser undertook a further evaluation of Thermo No. 1 and concluded that while the plant's " performance may improve from the current output level," it " likely will not achieve [the] originally designed electrical output levels." ( Id. at ¶ 91). As a result, Raser determined to recognize an impairment loss of $52.5 million to the value of Thermo No. 1. ( Id. ). During the third quarter of 2010, Raser commenced a solicitation process for the sale of Thermo No. 1. ( Id. at ¶ 101). Based on the solicitation process and its further evaluation of the performance of the plant, Raser took a further write-down in December 2010, which was reflected in its 2010 Form 10-K. ( Id. at ¶ 104). On April 29, 2011, Raser filed for chapter 11 protection. ( Id. at ¶ 105).

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Plaintiffs allege that Raser's SEC filings were false and misleading in violation of Section 10(b) because defendants (1) failed to disclose that problems experienced with Thermo No. 1 were caused by inadequate " early well field development activities" and " poor well design," and that Raser's " rapid deployment" system was a " failure" (D.I. 14 at ¶ 62); (2) " lacked any reasonable basis" for their " expectation" that Thermo No. 1 would become operational at or near full capacity in the third quarter of 2009 ( id. at ¶ 54); and (3) failed to recognize timely " impairment losses" for Thermo No. 1 and, thus, " overstated" its carrying value during the class period. ( Id. at ¶ ¶ 57-58).


To state a claim for securities fraud under Section 10(b), a plaintiff must plead: (1) a material misrepresentation (or omission) in connection with the purchase or sale of a security; (2) scienter, i.e., a wrongful state of mind; (3) reliance; (4) economic loss; and (5) " 'loss causation,' i.e., a causal connection between the material misrepresentation and the loss." Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005); see also In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 275 (3d Cir. 2006). To survive a motion to dismiss, a plaintiff alleging securities fraud must satisfy Rule 8's requirement of factual allegations sufficient to " state a claim to relief that is plausible on its face," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and the " heightened pleading requirement[s]" imposed by the Private Securities Litigation Reform Act of 1995 (" PSLRA" ) and Rule 9(b). In re Suprema Specialties, 438 F.3d at 276.

The purpose of the PSLRA is " 'to restrict abuses in securities class-action litigation.'" Id. at 276 n.8 (quoting In re Advanta Corp. Sec. Litig., 180 F.3d 525, 531 (3d Cir. 1999)). The PSLRA requires that the complaint " specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." Id. (quotation omitted). The complaint must also allege, with particularity, facts giving rise to a " strong inference" that each defendant acted with scienter, that is, a " mental state embracing intent to deceive, manipulate, or defraud." 15 U.S.C. § 78u-4(b)(2); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (quotations omitted). In addition, the PSLRA " immunizes from liability any forward-looking statement" if it is " accompanied by meaningful cautionary language; or it is immaterial; or the plaintiff fails to show the statement was made with actual knowledge of its falsehood." Institutional Investors Group v. Avaya, Inc., 564 F.3d 242, 254 (3d Cir. 2009).

As a threshold matter, defendants argue that the Court must disregard or discount the sources on which the allegations in the amended complaint rely -- information relayed to a confidential witness, allegations from a qui tam complaint, and an internet article. Turning first to the internet article, plaintiffs concede that it was written by an executive at a company currently in litigation with Raser over the subject matter of the article -- the power generation units that the company sold to Raser for use in Thermo No. 1. (D.I. 14 at ΒΆ 42). This concession might suggest that the ...

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